I’ve been going over the mortgage settlement documents over the past few days – a lot has been released, with many implications. There is plenty to criticize. Subprime Shakeout has a great summary, and David Dayen has done a wonderful job going through the nitty gritty. Abigail Field has a spectacular review of the problems with the servicing standards. I’ll make a few criticisms of my own below. But I think the most interesting parts of the document release were the HUD Inspector General reports on the five banks and the DOJ complaint. What these prove is what we’ve always known – the law enforcement community knew exactly what these banks were doing. DOJ simply chose not to prosecute. There was intent to defraud, fraud, and frankly, according to HUD.

In fact, it’s not clear that the past tense is the correct tense to use. The Wells Fargo report is particularly interesting on that last point. Take it away, HUD OIG (italics are mine).

At the time of our review, affidavits continued to be processed by these same signers, who may not have been qualified, and these signers may not have adequately verified certain figures because they accessed a computer screen of data showing a compilation of figures instead of verifying the data against the information through review of the books and records kept in the regular course of business by the institution.

I’m sorry, but WHAT THE $&*@!?!? I’m so glad Eric Holder has cut a deal with Al Capone while Capone is still on a shooting spree. And note, this isn’t just robosigning, this is potentially overcharging homeowners with junk fees and just generally not verifying accurate data on who owes what to whom. There really is no lesson here except “crime pays”.

And keep in mind, that’s Wells Fargo, the “good bank”, the one owned partially by St. Warren Buffett, the one whose executives assured the public as well as a room full of Congressional staffers in 2010 that they did not use robosigners. It turns out that not only did they use robosigners, but senior executives knew about it and set policies designed to make sure that documents were signed without verification. And when the HUD OIG tried to interview the 14 affidavit signers disclosed by Wells, Wells allowed the IG to interview only 5 of them. Eventually, the bank allowed interviews with all of them, provided that bank attorneys were in the room, as well as private attorneys for each robosigner, who were also paid for by Wells. It also turns out that the IG interviewed 33 more robosigners used by Wells that the bank had tried to hide but ultimately had to admit employing.

And then there’s what the HUD OIG had to say about Bank of America when it demanded documents. “Bank of America”, said the report, “only provided excerpts of subpoenaed personnel documents.” Get that? Bank of America would not comply with subpoenas.

It goes on and on like this (as Ben Hallman notes). These HUD OIG documents are breathtaking – the claim is that the banks actively impeded these investigations, through delay, obfuscation, lying, and incompetence. It’s rare to see a government official actually come out and talk about how an investigation was impeded. Kudos to the HUD OIG for the clarity of language.

We should all be pretty disturbed, though, at what this settlement means now that the details are out. Abigail Field has a remarkable analysis of the servicing standards put forward in the agreement, an analysis appropriately titled “The Mortgage Settlement Lets Banks Systematically Overcharge You And Wrongly Take Your Home “. Fields points out that the standards basically set caps for the number of illegal fees and illegal foreclosures banks can engage in before getting into trouble. Banks are actually allowed, in the standards in this settlement, to foreclose on people who are current on their mortgage. Let me repeat that – according to Fields, banks are actually allowed, in this settlement, to foreclose on people who are current on their mortgage. Don’t Steal Too Much, is the essential message. Though I might modify it to, Don’t Steal Too Much, Pretty Please, based on the obvious criminality and contempt for law enforcement implied by the HUD investigative reports.

Beyond these reports (and the complaint by DOJ showing that Holder and the other attorneys general knew and understood what the banks were doing), the mortgage settlement is incoherent. The settlement will be challenged in court by investors. And the formula for settlement credits is bizarre and full of easter eggs for the banks. For instance, banks will now get credit for houses they were going to bulldoze anyway, essentially being allowed to unload low-value properties with clouded title on a dollar-for-dollar basis, which are actually worth pennies on the dollar (or perhaps value negative in areas where there are fines for not keeping up properties). Banks will also get credit for not going after deficiency judgments, which means they get credit when they choose not to sue foreclosed families who have no money. They aren’t suing for deficiency judgments anyway, by and large, because suing people who have nothing is, surprise, not profitable! But they’ll get billions in credit for this regardless.

So what is the rationale for this settlement, from the perspective of the administration? There are many different parts of the law enforcement and housing community, and they don’t all agree. Some groups, like the OCC, are simply in thrall to the importance banks and the implied social order of banker supremacy. But others, like I suspect Shaun Donovan, believe in the Lays Potato Chip Theory of principal write-downs. This theory goes, the actual settlement details are not important, as long as they force the banks to start writing down a few mortgage. Once the banks realize that writing down mortgages is profitable, because they are more likely to be repaid, they won’t be able to stop. They will have set up the infrastructure to do mass write-downs, and such infrastructure tends to be used. Nom nom nom.

I don’t, obviously, buy that, as I think the accounting fraud and executive compensation incentive structures get in the way of mass write-downs (as does mortgage banker DNA). But a blanket corruption argument is too simplistic and prone to imprecise hyperbole. I prefer the argument that a new legal system is being designed wherein property rights are increasingly based solely on political connections. With that lens in mind, this settlement fits into the overall policy arc of the Bush and then the Obama administration (you could trace this back to Carter, but I’m specifically focusing on the foreclosure crisis). From the nationalization of Fannie and Freddie to TARP to the Fed bailouts to Dodd-Frank to this settlement, the policy continuity of extreme creditor bias is ever-present. In plain language, the policy is foreclose first, ask questions later. And yes, this probably comes from the top, from President Barack Obama himself, and his reminder that it’s an important policy priority to ensure that whatever is done, we mustn’t accidentally help irresponsible homeowners and investors.

If the 2012 election feels hollow, this might be why. Such a massive Constitutional redesign of our American order should be debated, and a Presidential race is the right forum in which to do so. But since that’s not happening, social conflict a few years down the road is probably the more likely path. It is a hopeful sign that the Federal Reserve in DC and the New York Fed are beginning to recognize that foreclosures are problematic in the context of implementing monetary policy, since housing finance is an important channel for economic regulation. But how we get from there to reestablishing some form of liberal legal framework that protects property rights and enforces the law on a reasonably equitable footing isn’t obvious.

About Matt Stoller

From 2011-2012, Matt was a fellow at the Roosevelt Institute. He contributed to Politico, Alternet, Salon, The Nation and Reuters, focusing on the intersection of foreclosures, the financial system, and political corruption. In 2012, he starred in “Brand X with Russell Brand” on the FX network, and was a writer and consultant for the show. He has also produced for MSNBC’s The Dylan Ratigan Show. From 2009-2010, he worked as Senior Policy Advisor for Congressman Alan Grayson. You can follow him on Twitter at @matthewstoller.

33 comments

I’ve been reading a bunch of the analyses on the mortgage settlement and appreciate them very much. However, and maybe this is due to me getting my news mostly from the internets, I have not seen any sort of direct questioning of the major deal-makers by intrepid journalists. Is this because:
1. Deal-makers aren’t taking questions?
2. There are no intrepid journalists?
3. Other

They, the pols and bankers, just seem to be steamrolling ahead with impunity.

“Burke said there were Three Estates in Parliament; but, in the Reporters’ Gallery yonder, there sat a Fourth Estate more important far than they all.” Thomas Carlyle

“the pols and bankers, just seem to be steamrolling ahead with impunity.” –

That happens in a completely corrupt Plutocracy, it will also continue to be that way for many years. Until these “people” are held accountable, there is no incentive to change anything.

I’m guessing when enough Americans have been pillaged, and the wrong (or right) Americans start being looted, then we’ll start seeing some rope & lamppost displays with banker/politians at the ends of them. It’s simply just not bad enough…yet.

Stephanie: I have not seen any sort of direct questioning of the major deal-makers by intrepid journalists. Is this because …

If “deal-makers aren’t taking questions”, so what? As they have for years, reporters can just say “Joe Slimeball refused to answer our questions”.

As for “there are no intrepid journalists”, forget intrepid. I’d settle for not brain dead. This is a ready-made prepackaged scandal, perfect for reporting. I’m starting to think the MSM isn’t corrupt so much as utterly oblivious and incompetent.

No, it’s worse than that. Our media culture has evolved beyond the point that journalists, intrepid or not, matter.

Most of the blogosphere is noise, let alone the mainstream media. The people who are doing important reporting — Taibbi in Rolling Stone, say, or this blog right here — will simply disappear in the noise as long as The Powers That Be steadfastly refuse to acknowledge their existence. Tie this in to officials systematically providing commentary (like protest-attendance estimates) that is designed to minimize & disenfranchise the involvement of ordinary citizens in the public sphere, and we’ve been effectively drowned out–American society has been inoculated against Vietnam Syndrome by the Kardashians.

Whenever I’ve seen it written that the lenders were contacted by journalists, invariably either the journalists never had their calls returned or the response was “no comment”. MERS did comment on the most recent lawsuit reported here by the NC county clerk and just said the suit was full of “political rhetoric”. Unless their attorneys are present and give approval, they won’t say anything, and even then it won’t be of any substance.

Further evidence of the fragmentation of political subdivisions within the US and the lack of vertical integration with regard to property law. There needs to be a national law that covers all property in the USA — all this state rights and even county code, just works to the advantage of the international corporations that exist and function beyond the fact of local law.

America,
Not matter which way you see it; we are screwed again by the government and the banking institutions that run the world. And you thought you owned your home. I had been preaching this all alone for over five years. If your note was sold at Wall St. securitized and in a trust, of course, all made believe. We all know, ooopss! maybe some of us know that double stamps of the trust are coming out to the surface now.
Millions of homes have clouds in the titles. MERS simply got away with murder as the banks are getting away too. The ironic part of this entire ordeal is that at the beginning, we did not know better. But now, we know as this settlement indicates that the politicians, the government, the DOJ and all the people in the so call investigations that really never took place, now know that the real criminals are the banks. If this settlement is another way to continue robbing the people of their homes, when is it going to be enough for the banks?
Are they going to repossess another 10 million homes and by then 25% of the population will be wiped out of this country? If the government is part of this plan, isn’t it about time the American people wake up and elect a good man like Ron Paul who believes and see the path we are going and made believe by the biggest corrupted politicians that are running for the Republican party right now.
America, if you don’t register Republican and vote for
Ron Paul this November, you better starts packing your bag and maybe go to China, because the Chinese already own this country. If the American people continue paying their mortgage to a servicer who doesn’t even own the note or cannot deliver the title of conveyance once you think you paid it off, you will have a surprise. But the cat is already out of the hut, the banks will be able to take your home even if you are current with your payments.
We can always pray to God to save us from this mess and the injustice of the people that we trusted and put in office to control and regulate or even apply the law.
I wonder how the 49 Attorney Generals feel about this settlement now that is all done, seal, and delivered. Do you think one will have remorse and will come out and speak up for what they were made to do?
How about all those AG who did not want or refuse to sign such a settlement because they knew what the banks were going to get away with and more?
Elections! anyone? This is our chance to pay back the favor to all of those who sign this settlement and put us under the bus and out on the streets.

PS, at any closing, read all bank and title co terms closely, they can change overnight. They (everybody else in the room) make it seem like everything is perfunctory, but only works to the buyer’s disadvantage.

“Aren’t these new revelations going to discourage potential home buyers?”

Short answer: Yes, some people will be discouraged.

Agree to make sure you get title insurance that is in your name. The title insurance required to get a mortgage covers the bank’s liability, not yours. There will be an extra fee for the additional coverage.

My understanding is that many states, maybe most, have statutes that make home sales final and unable to be overturned once made and a short time period has elapsed even if turns out the sale was made under questionable circumstances, e.g. somebody who didn’t have the power to make the sale. I am not an attorney however, and laws vary by state, so I suggest you get competent legal advice.

Hey, Republicans, “free-marketers”, tea-partiers – all you who are constantly railing about the moral failures of the lower classes and increasingly demanding drug-testing and other shaming against the unemployed and those receiving public assistance-

Tell me after seeing the massive, systemic, overwhelming, knowing fraud and corruption and subsequent obstruction of investigations and justice by our supposed betters, the bankers and “job creators”- why shouldn’t all of us average Americans NOT take the lesson we’ve had shoved in our face to heart….and decide we’re going to be the biggest crooks we can be….apparently it pays well and has no repercussions.

Shouldn’t the headline be more like: “Obama’s mortgage settlement gives Warren Buffet a free pass for frauds on the court?” I mean:

And keep in mind, that’s Wells Fargo, the “good bank”, the one owned partially by St. Warren Buffett, the one whose executives assured the public as well as a room full of Congressional staffers in 2010 that they did not use robosigners. It turns out that not only did they use robosigners, but senior executives knew about it and set policies designed to make sure that documents were signed without verification. And when the HUD OIG tried to interview the 14 affidavit signers disclosed by Wells, Wells allowed the IG to interview only 5 of them. Eventually, the bank allowed interviews with all of them, provided that bank attorneys were in the room, as well as private attorneys for each robosigner, who were also paid for by Wells. It also turns out that the IG interviewed 33 more robosigners used by Wells that the bank [executives] had tried to hide but ultimately had to admit employing.

What did Warren Buffet know and when did he know it?

Isn’t it true that robosigning is perjury? Isn’t it true that perjury is a felony and something that judges used to take seriously? Did I not get the memo on this?

UPDATE There’s a word for this:

a new legal system is being designed wherein property rights are increasingly based solely on political connections

Why, Bank of America has even earned special treatment. They get an extra 25% credit on any mods they make the first year and if they remain in compliance with the agreement, they get a reprieve on a fine of almost a billion dollars levied against them. In other words, they get extra credit for not continuing to break laws and doing what they have supposed to have done all along.

None of the banks have been complying with discovery or subpoenas in private suits. That’s one of the reasons why this suit and the suit by FHFA on behalf of Fannie/Freddie have been so important, to provide access to information for private party suits to use. Federal prosecutors have the powers to enforce subpoenas that private parties don’t as well as having superior investigative powers, e.g. the ability to go into the banks and do on-site audits. The FHFA used their powers and a year later had a ton of stuff. Unfortunately it doesn’t appear that the AG commission used theirs.

Your obligation is to report it to The Attorney General. His response is his problem But if you know of an ongoing illegal act you must report it to Ericc Holder or Randy weaver. He\ll pas it on to the FBI.

Report what and why? Real property law falls under state jurisdiction. I have repeatedly been in contact with my state AG to let him know of ongoing issues. I’ve been told they don’t prosecute crimes. WTF? They said to contact my local DA. And miracles of all miracles, my local DA just filed a suit against all the lenders and MERS! It will be interesting to see how much funding they receive from the settlement for the suit.

Holder has made it very clear he is not interested in pursuing illegal activities committed by financial institutions. The FBI had their financial crimes division slashed to 100 agents nationwide and the remaining reassigned to the war on terror during the Bush era. The FBI couldn’t take on a massive and pervasive problem like this if they wanted to. To provide some perspective, 1000 FBI agents were assigned to the investigation of the savings and loan during the 1980’s which was a far smaller problem in comparison.

“a new legal system is being designed wherein property rights are increasingly based solely on political connections”

Not sure what we’re seeing is anything new. We’re just not used to this kind of terminal retrogression here in America. This kind of wholesale property expropriation is familiar from neocolonial Africa and late-stage collapse of COMECON. You saw it in Zimbabwe under Mugabe and in Romania and to a limited extent in Russia. It does go beyond corruption, as the term is commonly used to mean retail bribery, but abuse of function and trading in influence (as defined in the Convention Against Corruption) are crucial to the rot. It’s not so much a new system as a loss of societal integrity, a decomposition process characterized by drift and chaotic adaptation. If it plays out to the finish the state will have no protective capacity, only repressive capacity.

Development can go backwards because it’s not a function of technology and growth like the Bretton Woods technocrats say, it’s a function of human rights. Look at old Edwardian pictures of some rubble-strewn West African hellhole, and you’d think you’re looking at Philadelphia. We’re well on our way down that path.

“But since that’s not happening, social conflict a few years down the road is probably the more likely path.”

Social conflicts will not wait for the eventual “few years down-the-road”. Unless something drastic is done now, riots will erupt here in a few short months. People are fed up. People have lost all trust in government, Congress, AGs and anyone else purporting to protect their interests. We are creating a contingent of people who have lost everything. This is the most dangerous kind for any government. Even Bob Dylan knew it: “When you ain’t got nothing, you’ve got nothing to lose.”

I realize that our own government is arming itself to the teeth in anticipation. I’ve seen what police looks like in NY, Oakland and other cities, right out of the worst scifi movies. This is real life. Not Scifi. Those police, armies and others have mothers, fathers, brothers and sisters who have been -and will continue to be- as victimized by banks as anyone else. If government is trying to buy time, it is making a very bad mistake: the longer it waits and the more people will have a reason to riot. And by then, government won’t have police and military loyalty any longer.

Please don’t talk of lampposts and hangings. Pleae have faith in The american people to rise above a predatory state while simultaneously changing democracy for the better. We are the best thing going. If we disintigrateor lower ourselves by violence we defeat all the true heros of our past. Our Country is blessed and god will help our democracy flourish provided that we the downtrodden police ourselves. If we resort to violence, then the vicious will have more opportunity to prey on our young. Have faith. Congress knows we know. Someone will present a coherent plan. Please be peaceful to all who do you no bodily harm.

Pretty to think all this. But the reality is that the looters at the top of the system are not going to change till they’re stopped. They see their ability to loot as proof of their superiority over us sheeple.

But you also need your Malcolm X and your Black Panthers –even your Baader-Meinhof/Angry Brigade — in order to put the fear of God into the swine, and make them realize they can either have things the easy way or the hard way.

See Chenoweth on this; a militant wing doesn’t necessarily lead to better outcomes, exactly because a non-violent movement with a violent component has a much harder time being seen as.. non-violent. Because it’s not.

I simply don’t see how the settlement can accomplish what the powers that be seem to want it to: make it easier to ram through foreclosures. Incompetence and foolish stupidity have made it difficult or even impossible in many cases for the banks to foreclose without committing fraud. While a settlement can forgive past crimes it cannot grant one permission to commit them in the future. As near as I can tell, despite the “sin no more” sections the intention is to make it clear that the AGs intend to look the other way.

Of course if the cabinet were high school, DOJ and DOT would be the popular kids that everybody sucked up to and HUD would be the geeky mouth breather in the back. Historicly it’s a bit of a dumping ground for political appointees who are too important to assign to FEMA. So don’t expect much attentin to be paid to the HUD report by actual movers and shakers.